Lawsuit/Discrimination

[Gretel]

I am pretty sure that a class action suit for discrimination results in taxable income.

I was trying to find the exeption, I believe it was established last year, when awards from a lawsuit for punitive damages is not taxable. I searched the web CD but can not find anything. Anyone knows? Or did I dream?

[jerome]

Click on Tab 3 in the WebCD. Then from Tab 3 Contents in the upper left, click on Lawsuit Settlement and Awards. Takes you to page 3-20. Then click on the Lawsuit Settlement and Awards heading and it will take you to the IRS Pub that talks about what is taxable and what is not.

In the list of taxable settlements or awards on page 3-20, it lists damages for nonphysical injuries, including discrimination, defamation, libel, slander, etc.

[Gretel]

Thanks, Jerome. I read all of that. I still think there was a ruling last year which makes certain settlements non-taxable that were taxable before. I am not giving up yet.

[New York Enrolled Agent]

I believe what you're thinking about is the ability to NET the legal fees with the monetary award and then put only the net amount on the front of the 1040 form. Otherwise, the full award goes on the 1040 and the legal fees go on Schedule A and often cause AMT problems. The inherent taxation(or non-taxation) of the awards did not change.

[Gretel]

Thank you so much Enrolled Agent. I believe you are right, now I can let go and work peacefully.